Laurel Industries sold merchandise with an invoice price of $1,800 to Calvary Company, with terms of 2/10, n/30. Which of the following is the correct entry to record the payment by Calvary within 10 days if the company uses the perpetual inventory system and the gross method to record purchases?

题目解析

Question

Laurel Industries sold merchandise with an invoice price of $1,800 to Calvary Company, with terms of 2/10, n/30. Which of the following is the correct entry to record the payment by Calvary within 10 days if the company uses the perpetual inventory system and the gross method to record purchases?

题目解析

BlackTom AI · Accepted Answer

We start by restating the scenario to ensure we’re evaluating the right transaction: Laurel Industries sold merchandise with an invoice price of 1,800 to Calvary Company, under terms 2/10, n/30. Calvary pays within 10 days, and we’re using the perpetual inventory system with the gross method to record purchases. Under the gross method, the buyer initially records the purchase at the gross amount (1,800) and later discounts are recorded if the payment is made within the discount period. When the discount is taken, the buyer reduces both cash and the accounts payable by the full amount and reduces the inventory (not a separate Purchases account) by the discount amount because the cost of inventory is net of the discount.

Option 1: Debit Cash 1,764; Debit Inventory 36; Credit Accounts payable 1,800
This entry is inconsistent. Debiting Cash would increase an asset instead of reducing it, and the standard effect when paying within the discount period is to credit cash (not debit it). Additionally, while it correctly reduces accounts payable, the discount impact should credit Inventory (to reflect the reduced cost of inventory), not debit Inventory. Overall this option misstates the direction of the cash account and misallocates the discount.

Option 2: Debit Accounts payable 1,800; Credit Cash 1,764; Credit Inventory 36
This aligns with the proper mechanics. The accounts payable is reduced by the full invoice amount of 1,800 (debited), cash is paid at 1,764 (credited), and the 36 discount (2% of 1,800) reduces the inventory cost by crediting Inventory for 36. Using the perpetual system, the inventory reduction properly offsets the net cost of goods.

Option 3: Debit Accounts payable 1,800; Credit Cash 1,800
This entry pays the full 1,800 in cash with no recognition of the 2% discount. Since Calvary did pay within the discount period, the 36 discount should be recorded as a reduction in inventory (or cited as a Purchase Discounts in other setups, but under perpetual inventory the effect is on Inventory). This option ignores the discount, making it incorrect.

Option 4: Debit Purchases 1,764; Credit Cash 1,764
This entry ignores accounts payable entirely and uses the Purchases account, which is inconsistent with a perpetual inventory system where purchases are tracked in Inventory as purchases are made and discounts affect the inventory cost. Moreover, it records only the cash payment without reducing the accounts payable, so it does not reflect the obligation being settled.

In summary, only Option 2 correctly records paying within the discount period under a perpetual inventory system with the gross method: it reduces Accounts payable by 1,800, reduces Cash by 1,764 (the amount paid), and reduces Inventory by 36 to reflect the discount on the inventory cost.

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